You Can Beat The Trade War This Way

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Let’s get to the market…

I’ll be blunt: Things are down across the board.

The Recession War Drums Continue

Almost every single index I analysed last week was pointing down at one point or another. News outlets are hammering out articles about an impending recession.

Here’s the kind of thing I’m talking about, from an article written by ABC News reporter Ian Verrender:

‘…we find ourselves; hocked to the eyeballs with no obvious way out. Wages growth has slumped and savings have depleted.

More concerning, the housing boom — where most of that debt has been deployed — is but a distant memory. It has been in reverse for four years in West Australia and for more than 18 months on the east coast.

And Chetan Ahya, Co-head of Global Economics and Chief Asia Economist at Morgan Stanley, hinted at a recession in nine months.

And can you guess who Morgan Stanley is pointing its fingers at?

That’s right. The Donald himself and his tariff policies.

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Make America Not So Great Again

In a recent white paper, China said the trade war has not ‘made America great again’.

It went on to detail not one or two but four reasons why:

  1. The tariff measures mean significantly increased production costs for US companies.
  2. The tariff measures lead to domestic price hikes in the US.
  3. The tariff measures have an impact on US economic growth and people’s livelihoods.
  4. Finally, the tariff measures lead to barriers for US exports entering China.

I suggest you read the piece in full to put the market moves and news in context.

There are two sides to every story. But plunging bond rates, wobbly stock markets and slowing economic data suggest that Trump’s economic policies are misguided.

That doesn’t mean opportunities to profit in the stock market disappear completely.

This Unknown Stock Market Chart

I’m going to go over some data that you probably haven’t heard about before.

Take a look at this chart…

A close up of a logo  Description automatically generated

Source: Optuma

What is it showing you? It’s the cumulative return data from the ASX, divided by each month of the year.

It’s pretty obvious which months historically aren’t much fun!

May is weak. June is a total dud usually. That’s probably related to tax selling ahead of the end of the financial year.

This is interesting in the context of the recession fears sweeping the market.

As you can see, the odds of a rising stock market now weren’t great anyway.

But see the implication. We could get a bounce into July and August.

Indeed, it’s possible that now is the best time of the year to cash up as much as you can and prepare to buy some short-term moves as the market comes back in a few weeks.

I know there are a lot of worries out there. Markets normally climb these — if in a volatile way.

Here’s the thing…

Go Against the Grain

All the recession fears sweeping the media aren’t really new. This trade kerfuffle has been going since February last year.

What’s dampening the market for now is the uncertainty of where all this goes next.

But there are positives happening in Australia as well…

Certainly, I don’t think we have seen any form whatsoever of the ‘exuberance’ that normally comes along with a market peak.

The main thing is that the property market appears to be stabilising. That should keep Australia’s economic outlook steady enough.

Then it’s just a matter of finding stocks that can flourish regardless of the wider ‘macro’ sentiment.

Indeed, you can turn periods of volatility like this to your advantage. Pick up some shares you want to own while they are ‘on sale’.

Imagine your timeline for an investment is three years.

It’s highly likely most of Trump’s current ‘diplomacy’ will be forgotten.

But the company you hold in 2022 will either have flourished…or failed to fire!

What I mean is that volatility and bad sentiment like we have now can so often be short-term factors.

You can remove their potency by extending your timeline and, perhaps, adjusting your position sizing to smaller amounts.

It’s a way to take advantage of the current market without getting spooked.

Look for business unrelated to the Chinese-American trade dispute and distant from the points of contention.

That’s one way you can beat the negative sentiment from this trade war.

Until next time,

Jim Rickards Signature

Jonathan Evans,
Analyst, Profit Watch

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